Real-time payments in a time of reduced cashflow

Both consumers and businesses are limiting their spend but real-time payments are gaining in popularity

By Jeremy Chan | 1 May 2020

Faster and real-time payments are more relevant that ever says Ed Adshead-Grant, general manager of payments at Bottomline Technologies.

“There is both money in and money out so that there are two sides to the transaction and for any economy, any UK PLC to compete, they need beyond doubt real time payments.”

“Just look at the disbursement challenges to get the government coronavirus supports funds out of the door. The last thing you want is for a cheque to be put in the post.”

For the past few years there has been the trend of transitioning to digital payments which is accompanied by faster payments, Shrey Rastogi, senior payments strategist at Temenos believes that the lockdown will accelerate the transition as social distancing measures directly encourage the use of real time payment solutions

“Notwithstanding the current economic downturn, today’s coronavirus crisis is leading to a big spike in digital real-time payments as consumers and businesses are drastically changing their purchasing habits to move away from cash. E-commerce is also growing rapidly due to lockdown restrictions and social distancing measures, and digital payments play a fundamental role in enabling this trend.”

A little more than half of UK businesses (53 percent) have made the transition to real-time payments with another 37 percent indicating they would make the transition this year, according to a report published by Bottomline Technologies last year.

The pandemic and subsequent lockdown has also seen businesses who were in the middle of transitioning, try to accelerate their move to digital invoices and payments.

“Pre-coronavirus, there was already a growing understanding of the value that real-time payments could bring to all players in the payments value chain. For customers, real-time payments mean instant access to funds and a better user experience, while for banks the technology can help to ensure better client retention”, says Rastogi.

“More widely, for corporates, real-time payments solutions enable better cash flow management. This means that businesses no longer need to plan for a two or three day payment cycle and can pay their suppliers and receive payments in real-time.”

A key driver of the digitalisation in payment and invoicing was reducing late payments which remains a continued source of anxiety for many SMEs. In 2019, businesses waited on £34bn worth of late payments, with more than one in three (39 percent) invoices classified as late according to a report by MarketFinance.

Payments and refunds

With coronavirus shuttering most of the economy, cashflow has become tight. Both consumers and businesses alike are spending less in this time of uncertainty. They are also attempting to try to recover funds where they can, leading to an increase in refunds. But those being asked to give a refund are just as cash strapped as any other, leading the industry into unfamiliar territory.

“If you look at refunds, I think that area may become quite contentious. Take for example, the airline industry and people trying to get their holiday money back. It's moved from [a cash refund] to companies issuing vouchers”, says Adshead-Grant.

“On a global scale this is quite a new area for the payment industry to understand.  What the is the law? and what are the consumer’s rights in having their payments returned?”

It has been reported that many airlines, who face an unprecedented demand shock have stopped issuing cash refunds as their cash reserves dry up. He says this voucher in lieu of cash trend is moving beyond the airline industry into other sectors of the economy.

“I’ve seen [vouchers] for parking, for hotels, from some theatre tickets and in the entertainment industry. There will be some contentious conversations to follow because [vouchers] are almost like a late refund ‘payment’. Everybody's kind of holding on to the prepaid cash and not really wanting to refund back to the original buyer. I think it's an interesting issue and one to watch.”

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